Questions and Answers of Taxation of Individuals and Business Entities 2021

Timpanogos Inc. is an accrual-method calendar-year corporation. For 2023, it reported financial statement income after taxes of $1,342,000. Timpanogos provided the following information relating to
Henrich is a single taxpayer. In 2023, his taxable income is $530,000. What are his income tax and net investment income tax liability in each of the following alternative scenarios?All of his income
On August 1, 2022, Nikola (Nasdaq ticker NKLA) agreed to acquire Romeo Power (NYSE ticker RMO). The Form 8-K for Nikola describes the transaction and was filed with the SEC, and can be accessed the
A corporation distributes noncash property to a shareholder, and the fair market value of the distributed property is greater than its adjusted basis. What impact does the distribution have on the
What are the requirements for an obligation to be a tax liability (or to have tax basis)?
Why do the book and tax bases differ for fixed assets?
In 2023, Deon and NeNe are married filing jointly. Deon and NeNe’s taxable income is $1,390,000 (all ordinary), and they itemize their deductions as follows: real property taxes of $10,000,
Distinguish the tax treatment of a NOL incurred in 2017, a NOL incurred in 2020, and a NOL incurred in 2023.
In 2023, Janet and Ray are married filing jointly. They have five dependent children under 18 years of age. Janet and Ray’s taxable income (all ordinary) is $2,400,000 and they itemize their
Lacy is a single taxpayer. In 2023, her taxable income is $48,000. What is her tax liability in each of the following alternative situations?All of her income is salary from her employer.Her $48,000
Sylvester files as a single taxpayer during 2023. He itemizes deductions for regular tax purposes. He paid charitable contributions of $7,000, real estate taxes of $1,000, state income taxes of
Brooklyn files as a head of household for 2023. They claimed the standard deduction of $20,800 for regular tax purposes. Their regular taxable income was $80,000. What is Brooklyn’s AMTI?
Whitney received $75,000 of taxable income in 2023. All of the income was salary from her employer. What is her income tax liability in each of the following alternative situations?a. She files under
In 2023, Lisa and Fred, a married couple, have taxable income of $400,000. If they were to file separate tax returns, Lisa would have reported taxable income of $225,000 and Fred would have reported
In 2023, Jasmine and Thomas, a married couple, have taxable income of $150,000. If they were to file separate tax returns, Jasmine would have reported taxable income of $140,000 and Thomas would have
Diane has a job working three-quarter time. She hired a relative to take care of her two small children so Diane could work. Do Diane’s child care payments to her relative qualify for the child and
In 2023, for a taxpayer with $50,000 of taxable income, without doing any actual computations, which filing status do you expect to provide the lowest tax liability? Which filing status provides the
Ian retired in June of 2019 at the age of 71. Ian’s retirement account was valued at $490,000 at the end of 2018 and $500,000 at the end of 2019. He has had all of his retirement accounts open for
You have been assigned to compute the income tax provision for Tulip City Flowers, Inc. (TCF) as of December 31, 2020. The company’s Income Statement for 2020 is provided below:Tulip City Flowers,
Timpanogos Inc. is an accrual-method calendar-year corporation. For 2020, it reported financial statement income after taxes of $1,342,000. Timpanogos provided the following information relating to
Adjusted taxable gifts are included in cumulative taxable transfers for calculating the estate tax. Explain whether including these gifts in the estate tax base will subject the gifts to double
Describe the property transfers that qualify as gifts and define transfers that are not gifts for transfer tax purposes.
Euro Corporation, a U.S. corporation, operates through a branch in Germany. During 2020, the branch reported taxable income of $1,000,000 and paid German income taxes of $300,000. In addition, Euro
USCo owns 100 percent of the following corporations: Dutch N.V., Germany A.G., Australia PLC, Japan Corporation, and Brazil S.A. During the year, the following transactions took place. Determine
Eagle Inc., a U.S. corporation intends to create a Limitada (limited liability company) in Brazil in 2020 to manufacture pitching machines. The company expects the operation to generate losses of
Sombrero Corporation, a U.S. corporation, operates through a branch in Espania. Management projects that the company’s pretax income in the next taxable year will be $100,000, $80,000 from U.S.
Spartan Corporation, a U.S. company, manufactures green eyeshades for sale in the United States and Europe. All manufacturing activities take place in Michigan. During the current year, Spartan sold
Carmen SanDiego, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. On April 1, 2020, GM relocated Carmen to its Brazilian operations for the remainder of 2020. Carmen was
Lars is a citizen and resident of Belgium. He has a full-time job in Belgium and has lived there with his family for the past 10 years. In 2018, Lars came to the United States for the first time. The
Spartan Corporation, a U.S. corporation, reported $2 million of pretax income from its business operations in Spartania, which were conducted through a foreign branch. Spartania taxes branch income
True or False: All outbound payments from a U.S. corporation to a related foreign subsidiary are subject to the BEAT minimum tax. Explain.
What is global intangible low-tax income (GILTI)? How and when is the GILTI of controlled foreign corporations taxed?
What is foreign base company sales income? Why does the United States include this income in its definition of subpart F income?
What is a “per se” entity under the check-the-box rules?
Compare and contrast the reasons why book/tax and federal/state adjustments are necessary for interest income.
Explain changes in the U.S. economy that have made Public Law 86-272 partially obsolete. Provide an example of a company that Public Law 86-272 works well for and one that it does not work well for.
Compare and contrast the rules determining where domiciliary and non-domiciliary businesses must file state income tax returns.
Compare and contrast general sales tax nexus rules under the Quill and Wayfair decisions.
Compare and contrast the relative importance of judicial law to state and local and federal tax law.
Mark is the sole shareholder of Tex Corporation. Mark first formed Tex as a C corporation. However, in an attempt to avoid having Tex’s income double-taxed, Mark elected S corporation status for
Calculate Anaheim Corporation’s excess net passive income tax in each of the following alternative scenarios:a. Passive investment income, $100,000; expenses associated with passive investment
Wood Corporation was a C corporation in 2019 but elected to be taxed as an S corporation in 2020. At the end of 2019, its earnings and profits were $15,500. The following table reports Wood Corp.’s
Tempe Corporation is a calendar-year corporation. At the beginning of 2020, its election to be taxed as an S corporation became effective. Tempe Corp.’s balance sheet at the end of 2019 reflected
Virginia Corporation is a calendar-year corporation. At the beginning of 2020, its election to be taxed as an S corporation became effective. Virginia Corp.’s balance sheet at the end of 2019
Corporation uses the accrual method of accounting and has the following assets as of the end of 2019. Rivendell converted to an S corporation on January 1, 2020. AssetAdjusted
Miley decided to terminate the S corporation election of her solely owned corporation on October 17, 2019 (effective immediately), in preparation for taking it public. Miley had previously
On January 1, 2020, Janna has a tax basis of $15,000 in her Mimikaki stock (Mimikaki has been an S corporation since inception). In 2020, Janna was allocated $20,000 of ordinary income from Mimikaki.
Chandra was the sole shareholder of Pet Emporium, which was originally formed as an S corporation. When Pet Emporium terminated its S election on August 31, 2019, Chandra had a stock basis and an
Timo is the sole owner of Jazz Inc., an S corporation. On October 31, 2020, Timo executed an unsecured demand promissory note of $15,000 and transferred the note to Jazz (Jazz could require
Assume the same facts as in the previous problem, except that at the beginning of year 1 Jessica loaned Bikes-R-Us $3,000. In year 2, Bikes-R-Us reported ordinary income of $12,000. What amount
Jessica is a one-third owner in Bikes-R-Us, an S corporation that experienced a $45,000 loss this year (year 1). If her stock basis is $10,000 at the beginning of the year, how much of this loss
Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. In the conditions listed below, how much income should each report from SleepEZ for 2021 under both the daily allocation
Cathy, Heathcliff, and Isabelle are equal shareholders in Wuthering Heights (WH), an S corporation. Heathcliff has decided he would like to terminate the S election. In the following alternative
Jane has been operating Mansfield Park as a C corporation and decides she would like to make an S election. What is the earliest the election will become effective under each of these alternative
Carrie D’Lake, Reed A. Green, and Doug A. Divot share a passion for golf and decide to go into the golf club manufacturing business together. On January 2, 2020, D’Lake, Green, and Divot form the
Elaine pays $40,000 cash for Martha’s one-third interest in the Lakewood Partnership. Just prior to the sale, Martha’s basis in Lakewood is $140,000. Lakewood reports the following balance
David’s basis in the Jimsoo Partnership is $53,000. In a proportionate liquidating distribution, David receives cash of $7,000 and two capital assets: (1) Land A with a fair market value of $20,000
Rufus is a one-quarter partner in the Adventure Partnership. On January 1 of the current year, Adventure distributes $13,000 cash to Rufus in complete liquidation of his interest. Adventure has only
Karen has a $68,000 basis in her 50 percent partnership interest in the KD Partnership before receiving a current distribution of $6,000 cash and land with a fair market value of $35,000 and a basis
Allison, Keesha, and Steven each own an equal interest in KAS Partnership, a calendar-year-end, cash-method entity. On January 1 of the current year, Steven’s basis in his partnership interest is
On August 1, 2019, Salesforce completed its business combination with Tableau Software, Inc. The Form 8-K for Salesforce (NYSE ticker CRM) describes the transaction and was filed with the SEC on
This year, Jack O. Lantern incurred a $60,000 loss on the worthlessness of his stock in the Creepy Corporation (CC). The stock, which Jack purchased in 2005, met all of the §1244 stock requirements
Are the tax consequences the same whether a shareholder contributes property to a corporation in a §351 transaction or as a capital contribution? Explain.
Brent, Matt, Chris, Brad, and Anwer are five unrelated shareholders who each own 20 of the 100 outstanding shares of Aggie Corporation. On June 30 of this year, Aggie distributed $100,000 in cash to
Using the facts in the previous problem, Oriole Corporation proposes to pay Larry $100,000 and give him an installment note that will pay him $30,000 per year for the next 10 years plus a market rate
How does a corporation’s adjustment to earnings and profits differ based on the tax treatment of a stock redemption to the shareholder (i.e., as either a dividend or exchange)?
A corporation distributes depreciated noncash property to a shareholder. What impact does the distribution have on the corporation’s earnings and profits?
Assume a calendar-year corporation has a deficit in current E&P of ($120) and positive beginning accumulated E&P of $120. Under this circumstance, a cash distribution of $120 to the
What is meant by the phrase “double taxation of corporate income”?
Spartan Builders Corporation is a builder of high-end housing with locations in major metropolitan areas throughout the Midwest. At June 30, 2020, the company has deferred tax assets totaling $10
Access the 2018 Annual Report for Facebook, Inc., and answer the following questions.a. Using information from the company’s Income Statement and Income Taxes footnote, what was the company’s
You have been assigned to compute the income tax provision for Motown Memories, Inc. (MM) as of December 31, 2020. The Company’s Income Statement for 2020 is provided below:Motown Memories,
What was Facebook’s accounting effective tax rate for 2018? What items caused the company’s accounting effective tax rate to differ from the “hypothetical” tax rate of 21 percent? What was
Saginaw, Inc. completed its first year of operations with a pretax loss of $500,000. The tax return showed a net operating loss of $600,000, which the company will carry forward. The $100,000
Which of the following would be considered negative evidence in determining whether Gratiot Corporation needs to record a valuation allowance for some or all of its deferred tax assets?a. The company
Which of the following would not be considered positive evidence in determining whether Adams Corporation needs to record a valuation allowance for some or all of its deferred tax assets?a. The
Woodward Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and
Briefly describe what is meant by the asset and liability or balance sheet approach taken by ASC 740 with respect to computing a corporation’s deferred tax provision.
Cedar Corporation reported a $25,000,000 net operating loss in 2020. In 2021, Cedar reported taxable income before any NOL carryovers of $20,000,000. What is Cedar’s taxable income in 2021 after
In 2020, SML Corp. reported taxable income of $100,000 before any NOL deductions. SML has a $170,000 NOL carryover that originated in 2017 and a $90,000 NOL carryover that originated in 2018. What is
WCC Corp. has a $100,000 net operating loss carryover into 2020. Assume that it reported $75,000 of taxable income in 2020 (before the net operating loss deduction) and $30,000 of taxable income in
In 2020 Hill Corporation reported a net operating loss of $10,000 that it carried forward to 2021. In 2020 Hill also reported a net capital loss of $3,000 that it carried forward to 2021. In 2021,
MWC Corp. is currently in the sixth year of its existence (2020). In 2015–2019, it reported the following income and (losses) (before net operating loss carryovers or carrybacks).2015: ($
ELS Corporation reported gross receipts for 2017-2019 for scenarios A, B, and C as follows:Year Scenario AScenario BScenario
What is the due date for a calendar year corporation tax return Form 1120 for 2020? Is it possible to extend the due date? Explain.
Is a net operating loss incurred in 2017 treated the same as a net operating loss incurred in 2020? Explain.
A Corporation owns stock in B Corporation and A Corporation receives a dividend from B Corporation. Ignoring the dividends received deduction, what book-tax differences will A report for the year
SCC corporation (a C corporation) has a net operating loss (NOL) carryover to 2020 in the amount of $30,000. How much tax will SCC pay in 2020 if it reports taxable income from operations of
Evaluate the following statement: “When dividends and long-term capital gains are taxed at the same rate, the overall tax rate on corporate income is the same whether the corporation distributes
Doug is considering investing in one of two partnerships that will build, own, and operate a hotel. One is located in Canada and one is located in Arizona. Assuming both investments will generate the
Did the tax lax law changes effective in 2018 increase or decrease the amount of the double tax on C corporation income? Explain.
James and Kate Sawyer were married on New Year’s Eve of 2019. Before their marriage, Kate lived in New York and worked as a hair stylist for one of the city’s top salons. James lives in Atlanta
Assume Rita’s consulting business generated $13,000 in gross income for the current year. Further, assume Rita uses the actual expense method for computing her home office expense deduction.a. What
Assume Rita’s consulting business generated $15,000 in gross income.a. What is Rita’s home office deduction for the current year?b. What would Rita’s home office deduction for the current year
Jesse Brimhall is single. In 2020, his itemized deductions were $9,000 before considering any real property taxes he paid during the year. Jesse’s adjusted gross income was $70,000 (also before
On January 1 of 2020, Jason and Jill Marsh acquired a home for $500,000 by paying $400,000 down and borrowing $100,000 with a 7 percent loan secured by the home. On January 1, 2021, the Marshes
Lewis and Laurie are married and jointly own a home valued at $240,000. They recently paid off the mortgage on their home. The couple borrowed money from the local credit union in January of 2020 How
Javier and Anita Sanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home. The Sanchezes
Javier and Anita Sanchez purchased a home on January 1, 2020 for, $600,000 by paying $200,000 down and borrowing the remaining $400,000 with a 7 percent loan secured by the home. The loan requires
Sarah (single) purchased a home on January 1, 2008 for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following

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